QUIZ – 2020: INSIGHTS STATIC QUIZ, 6 August 2020 – Economy

Solution: c)

Bank nationalisation started under the then Prime Minister Indira Gandhi with nationalisation of 14 major lenders that accounted for 85 per cent of bank deposits in the country at that time. Six more banks were later nationalised in 1980. The core objective for nationalisation was to energise priority sectors at a time when the large businesses dominated credit profiles.

The Lead Bank scheme was introduced in 1969. Each district was assigned to one bank, where they acted as “pace-setters” in providing integrated banking facilities.

Changes post 1991:

• Narasimham Committee of 1991 recommended that monetary policy should be divorced from redistributionist goals. Instead, banks should be free to practise commercial modes of operation, with profitability as the primary
• Taking the cue, the Reserve Bank of India allowed banks to open and close branches as they
• Priority sector guidelines were diluted; banks were allowed to lend to activities that were remotely connected with agriculture or to big corporates in agri-business, yet classify them as agricultural
• Interest rate regulations on priority sector advances were

Solution: b)

Cash reserve ratio (CRR) is a certain minimum amount of deposit that the commercial banks have to hold as reserves with the central bank.

The percentage of cash required to be kept in reserves, vis-a-vis a bank’s total deposits, is called the Cash Reserve Ratio.

The cash reserve is either stored in the bank’s vault or is sent to the RBI. Banks do not get any interest on the money that is with the RBI under the CRR requirements.
CRR helps in keeping inflation under control. At the time of high inflation in the economy, RBI increases the CRR, so that banks need to keep more money in reserves so that they have less money to lend further.

Solution: d)

Markets decide the exchange rate based on a variety of factors like:

• Net foreign currency inflows
• Commodity dependence of the country on global supplies
• Forex reserves
• Growth rate of the economy

If these factors are favourable, the currency strengthens.

Solution: c)

In economics, the GDP deflator is a measure of the level of prices of all new, domestically produced, final goods and services in an economy in a year.

Like the consumer price index (CPI), the GDP deflator is a measure of price inflation/deflation with respect to a specific base year.

The GDP deflator is a more comprehensive inflation measure than the CPI index because it isn’t based on a fixed basket of goods.

When GDP deflator is negative, nominal GDP is less than real DP. It means that there is deflation in the economy.

Solution: b)

A Primary Agricultural Credit Society (PACS) is a basic unit and smallest co-operative credit institutions in India. It works on the grassroots level (gram panchayat and village level).

Such co-operative societies have neither been issued any licence under Banking Regulation Act, 1949 (As Applicable to Cooperative Societies) nor are they authorized for doing banking business. In fact, recently, Reserve Bank of India has issued an advisory to general public against depositing money in co-operative societies or primary co-operative credit societies (PACS).

These entities are allowed to raise deposits only from their members.

The insurance cover from Deposit Insurance and Credit Guarantee Corporation will not be available for deposits placed with these entities. So, members of public have been advised by RBI to exercise caution and carry out due diligence of such entities before dealing with them.